If you have a spreadsheet program, invoices from your suppliers, and your surgeons’ preference cards, you have the means to calculate case costs, which is an integral component of your ophthalmic ASC’s profitability picture. We asked several OASC executives and consultants to break down the basics of case costing, including why, how, and how often this analysis should be done, and what to do with the information it reveals.

What You Will Learn

Calculating how much it costs your center to host the procedures performed most frequently — cataract surgery in most OASCs — provides a snapshot of your current situation, and, when updated regularly, enables you to identify trends that can affect your bottom line.

“The fundamental reason we calculate case costs is to make sure the ASC is profitable,” says Albert Castillo, MBA, director of business and financial development for San Antonio Eye Center and member services consultant for the Outpatient Ophthalmic Surgery Society (OOSS). “Ophthalmology is primarily based on Medicare reimbursement, and our fees are always being reduced. With limited income, we need to keep our costs down.”

Examining case costs in the context of reimbursement may reveal a need to adjust case mix. “Understanding how much it costs and what payers will pay every time you perform a specific procedure will help you understand whether or not you can continue to do that procedure and be profitable,” says Maureen Waddle, senior consultant with BSM Consulting, Incline Village, NV. “If cost exceeds payment, then your center should not be doing that procedure, or you need to find a way to reduce the cost.”

On the other hand, the cost of some supplies and materials has been decreasing, says Stephen C. Sheppard, CPA, COE, managing principal of real estate and operations with Medical Consulting Group in Springfield, MO. This is good news, of course, and should be reflected in your case costs.

“The cost of the basic consumables used for a cataract procedure has decreased significantly over the years,” says Sheppard. “So there’s an advantage to calculating your case costs at least annually to track trends. If you find that you’re not enjoying the downward movement in costs to the extent that you should be, it may be time to explore the reasons why. Comparing notes with associates at ophthalmology meetings is one way you can take the pulse of the marketplace.”

One of the most valuable functions of a case cost analysis is that it enables you to compare costs by surgeon within your center. “If one of your surgeons is doing something differently, perhaps using a more expensive product, that can drive up his or her per-case cost,” says John R. Grant, MBA, MHA, division president - ophthalmology for Amsurg Corporation, Nashville, TN. “Certainly, our surgeons need to use what they believe is best for their patients and the products they’re comfortable using, but a significant deviation from the norm, say 20%, would be a key indicator to review what is different and why that cost would be so much higher. A center’s quality committee may be able to recommend a comparable, lower cost alternative that is acceptable to that surgeon.”

Often, surgeons don’t know the impact of their specific preferences, says John P. Blanck, CPA, senior vice president of operations for Surgery Partners in Overland Park, KS. “Sometimes products are comparable in performance, yet differ in price, so case costing lets the surgeons know this,” he says. “They may be using a particular blade, viscoelastic, or phaco tip that’s more costly, even though they don’t really have a strong preference for it. If we show them a cost comparison between their preferences and those of their peers, they can make changes that will be more cost effective for the center without impacting patient care.”

How and When to Calculate Case Costs

Having an accurate accounting of what you spend per surgical procedure is essential for assessing and increasing profitability, and there is more than one approach to calculating case costs.

For most ASCs, a basic spreadsheet program, such as Microsoft Excel, is sufficient, as it can be set up easily with a list of a surgeon’s preferred supplies for each type of procedure he or she performs, along with the cost of each item.

Waddle says some centers may use a supplier’s inventory management and ordering system to help identify surgical supplies and their costs. She cautions, however, that bulk ordering (of sterile drapes and surgical masks, for example), although cost-effective for the center, can complicate calculating costs for a specific type of procedure, because not all items are used for all procedures.

In an effort to put a finer point on case costing, some centers calculate labor costs per case in addition to costs for surgical supplies.

“As an owner, manager, or director looking to improve the profitability of your facility, you have to determine what you can affect at the margin,” Sheppard says. “In ASCs, you’re pretty much limited to those two items, because you really can’t do anything to impact your fixed costs, certainly not in the short run.”

Sheppard explains that fully burdened labor costs for staff needed to run the OR (usually a circulating nurse, a surgical technician, a preop or recovery nurse, and, possibly, a member of the front office staff) include an employee’s hourly wage rate plus benefits, such as paid time off and health insurance, and employer-paid payroll taxes and retirement plan contributions. “You’re looking at the entire cost of having these employees onboard in your facility,” Sheppard says. “If five staff members are required per case, and each is paid $40 per hour, and a surgeon performs three cataract cases per hour, the marginal labor cost is $200 ($40 x 5 staff members) divided by 3, or about $67.”

According to Blanck, many facilities underappreciate the impact of labor costs. “Regardless of whether a surgeon performs four cases or 10 cases during a 6-hour period, essential staff members must be present — and paid — for that entire block of time,” he says. “If a surgeon routinely has gaps in his or her schedule or doesn’t fill the schedule, the effect on labor cost per case can be significant.”

Because case costs are directly linked to an ASC’s bottom line, these consultants recommend updating them at least annually, unless something significant changes.

“If a new surgeon joins the center, or you start offering a new procedure, for example, that would warrant a fresh look at case costs,” Blanck says, “as would upgrading surgical supplies, changing vendors, or negotiating a new contract with a vendor.”

Waddle agrees, noting that a change in case mix can have a profound impact. “Cataract surgeries are the mainstay in most OASCs, so they’re always being monitored,” she says. “But if a cataract-only surgery center brings in oculoplastics, which will entail new procedures, such as blepharoplasties and ptosis repairs, management should conduct an initial case cost analysis immediately, and then monitor costs monthly until management understands how those new procedures affect their financials.”

Grant recommends the center do a pro forma of case costs for a new procedure, checking its accuracy after the first 10 or so cases.

Best Practices for Controlling Case Costs

Once you’ve established a system for calculating case costs, the real work begins, because changes are inevitable. The consultants offered several recommendations for addressing rising case costs, and, without exception, they all agreed that tapping into the competitive nature of surgeons will help keep case costs in line.

“By sharing case costs with all of the surgeons in the center, we motivate them to compete, and physicians like to compete,” Castillo says. “Competition drives the outliers to adapt to what everybody else is doing and to improve their efficiency so their case costs are comparable. We also use that same competition to standardize the supplies that are being used.”

One caveat stressed by all was articulated by Sheppard: “The job of a consultant or a clinical director is not to tell the doctors how to practice medicine,” he says, “but rather to give them all the information they need to make choices that are beneficial or benign to their patients and that are positive or benign for the ASC.”

Other recommendations include:

• Check for accuracy. If you discover an unexpected increase in case costs, it may not signal a trend. “Mistakes happen,” Waddle says. “Someone may have entered an equipment purchase into medical supplies, an error that is easily rectified. Also, if you’re a member of a buying group, make sure your invoices reflect the buying group rate.”
• Negotiate with payers and vendors. If yours is a high-volume ASC, your negotiating power is strong, Blanck says. “If your surgery center is performing 3,000 cataract procedures a year, and you can save $35 per case by negotiating a better price. That’s $105,000 saved annually that could be distributed to shareholders,” he says.
• Use your spreadsheet as a resource. “Once your spreadsheet is built — the first time is the toughest — update it regularly and use it as an analytical tool to evaluate the impact of changes, real or projected, on the underlying economics of your ASC,” Sheppard says.
• Make standardization a goal. “As we’ve learned from ‘lean’ management methods, standardizing supplies and processes reduces errors and improves time,” Waddle says. “It also reduces costs, because, generally, we can negotiate better volume pricing if our surgeons use the same surgical supplies.”
• Be aware of how new technology affects case costs. The use of premium IOLs and femtosecond lasers in cataract surgery are just two examples of difficult-to-classify costs. “There are substantial costs associated with each of these technologies, which are patient-paid services,” Waddle says. “Individual ASCs must determine how they will account for these services in their tracking systems and accounting software to avoid artificially inflating their per-case costs.”
• Use case-costing time wisely. “If one of your surgeons will perform a particular procedure four times a year, don’t spend 6 hours calculating the case cost,” Sheppard says.

Ensuring Profitability

With shrinking reimbursements and tight margins, OASCs are challenged to economize wherever possible while maintaining the highest standard of care. Calculating and tracking per-case costs and taking action when appropriate will help ensure profitability. ■